CANADA FX DEBT-Europe fears push C$ to 4-month low

Reuters Staff

4 Min Read

* Currency ends at C$1.0242 vs US$, or 97.64 U.S. cents
* C$ hits lowest since Jan. 9 at C$1.0296 vs greenback
* Bonds climb across curve; 30-yr yield touches record low
By Jennifer Kwan
TORONTO, May 23 (Reuters) - The Canadian dollar skidded to
its lowest level in more than four months against its U.S.
counterpart on Wednesday, falling in tandem with the euro and
global equities, as investors worried about Greece's possible
exit from the euro zone.
The currency fell as low as C$1.0296 versus the
U.S. dollar, or 97.13 U.S. cents, its weakest since Jan. 9, as
investors shunned riskier assets on doubts that any new measures
to tackle the euro zone debt crisis would emerge from a European
leaders summit.
"There is a tremendous amount of uncertainty," said Camilla
Sutton, chief currency strategist at Scotiabank.
"Most of it is headline risk and the concern and the
uncertainty that lies ahead, particularly as there is an
escalation and debate on when, if and how Greece might leave the
euro. We still think the risk is under 50 percent."
European leaders are expected to discuss boosting growth at
their meeting later on Wednesday and the idea of a joint euro
zone bond. French President Francois Hollande supports the bond
plan, but German Chancellor Angela Merkel opposes it.
As well, each euro zone country will have to prepare a
contingency plan for the eventuality of Greece leaving the
single currency, three euro zone sources told Reuters, citing an
agreement reached by officials.
The lack of market confidence that the summit would yield
meaningful progress sent the euro to a 21-month low.
"We don't expect much by way of concrete proposals coming
out," said Mark Chandler, head of Canadian fixed income and
currency strategy at RBC Capital Markets.
The currency ended at C$1.0242 versus the U.S. currency, or
97.64 U.S. cents, weaker than Tuesday's North American session
finish at C$1.0218.
Traders largely looked past a domestic report that showed
retail sales bounced back in March. Canadian retail sales
climbed after a February setback, growing 0.4 percent as
consumers bought more cars and warm weather prompted them to
begin their spring shopping for items such as clothing, sporting
goods and garden equipment.
The data had a "very fleeting impact," said Greg Moore, a
foreign exchange strategist at TD Securities. " The focus remains
on Europe for now," he said.
LONG BOND HITS RECORD
Canada's dollar notched a mixed performance against other
G10 currencies, but outperformed some of its commodity-linked
peers. It reached 2012 highs against the New Zealand and
Australian dollars.
Scotiabank's Sutton said she sees Canada's currency trading
in a narrow range of C$1.0220-C$1.0320 versus the greenback into
Th ursday's N orth American open.
Canadian government bond prices rallied as investors sought
safe haven assets.
Canada's two-year bond climbed 9 Canadian cents
higher to yield 1.168 percent, while the benchmark 10-year bond
rose 21 Canadian cents to yield 1.888 percent.
The 30-year yield touched a record low of 2.39
percent.
The Bank of Canada's sale of bonds due 2045 produced an
average yield of 2.413 percent, also a record low for a 30-year
auction. The bid-to-cover ratio was 2.59 and reflected decent
demand, said RBC's Chandler.